CHAPTER IV. Summary.171 CHAPTER IV, SUMMARY. 464. The proposals envisaged in Parts I and II of the plan, other than those the capital cost of which is to be financed from Colonial Development and Welfare Schemes, involve expenditure of $186,325,000 on works of a capital nature and additional expenditure of a recurrent nature rising to $22,536,000 in 1955. Of the former $36,125,000 are already ineluded in the 1949 $100,000,000 loan and it is proposed to meet $91,000,000 from the proceeds of a further public loan to be floated in 1952 aud succeeding years, leaving $59,200,000 to be met directly from the revenue. Of this sum, $4,068,000 was included in the 1950 estimates, leaving a balance of $55,182,000. The loan servicing charges which will result from the raising of this fwther loan will increase the figure of additional annually recurrent expenditure quoted above. It is impossible to say how much this increase will be until the terms of the loan are decided which can only be done at the time of issue in the light of market conditions then prevailing but, if it is possible to raise the loan at an interest rate of 34 per cent. and a 20-year life the annual servicing charges will be approximately $7,221,600, making a total additional ‘annually recurrent expenditure of $29,757,600. Of this amount $1,422,000 is already included in the 1950 estimates, leaving a net additional annually recurrent commitment of $28,335,600. 465. In considering the financing of a development plan of this nature the first and most essential point to consider is whether the public revenue will be sufficient to maintain the proposed schemes when completed. A considerable number of the schemes in Chapter II of the plan are, of course, in themselves revenue earning and should support themselves. "Examples of these are the telecommunications proposals and those drainage and irrigation schemes in respect of which additional land rents and drainage or Water rates ean be recovered. An allowance for additional revenue to be derived from these schemes themselves is made later 466. Tt should be pointed out at this stage that the figures which follow represent those of the Federation as a whole. Although the State and Settlement Governments possess considerable financial autonomy, it is against the background of the resources of the whole of the Federation that the financing of development must be regarded since the needs of some of weaker members may be more urgent than those of others. 467. Let us therefore attempt to forecast the total revenue and expenditure of the Federation as it will be when the present emergency, which now obscures the whole financial position, has ended. The latest estimate of the total normal revenue of the Federation for 1950, excluding His Majesty's Government’ contribution in aid of defence expenditure und grants under Colonial Welfare dnd Development schemes, is approximately $375,000,000. This includes $40,000,000 in respect of receipts from income tax which is the revenue expected to be received in 1950 in respect of one and a half years of assessment. It is, however, hoped that with increasing experience on the part of the Income Tax Department the revenue based on present rates of taxation will shortly rise to $40,000,000 in respect of a single year of assessment and this figure has therefore been retained. Taking into account the fact that certain increases in taxation were only imposed half woy through the year a further $8,100,000 may be added for a full year making a total of $383,100,000. 1950 has, however, been a very exceptional year in respect of the price of rubber,172 the estimated total collection of export duty on which is $42,300,000 during 1950. This cannot be expected to continue and, if adjusted to an assumed price of 45 cents per 1b. but to a totel increased production of 750,000 tons, the revenue from this source would be $37,800,000, involving a reduction of $4,500,000 on the total revenue and bringing it down to $378,600,000. To this figure of $378,600,000 must be added an estimated azmount of $15,000,000 on account of revenue to be expected directly from the development schemes themselves, roaling a total revenue of 898,600,000. 468. It should be pointed out at this stage that in this figure of $878,600,000, only $4,400,000 are included on account of the increase in import duty on tobacco introduced during the month of June, it having been assumed that consumption will in consequence full by 20 per cont. It is probable that this estimate of the consequent fall in consumption is on. the high side but since, with the assumed fall in the price of rubber, consumption of other dutiable goods will probably fall, it is thought that this is as good an estimate of the total revenue as can be made. 489. Against this, the total expenditure on personal emoluments ands annually recurrent charges (including the regular Police Force and the first three Battalions of the Malay Regiment but excluding the temporary increase in the Police Force due to the emergency and other emergency services and also expenditure under Colonial Development and Welfare schemes) in 1950 is estimated to amount to $805,000,000. ‘This may be reduced by, say, $2,000,000 when the Food Control and Supplies Department’ can be wound up but without doubt increased expendituce will be necessary on further additions to the Police Force while the 4th Battalion, Brigade Headquarters, and other ancillary units of the Malay Regiment (which are not included in the figur of $305,000,000 above) and also the Volunteer Forces will remain a permanent commitment. It is impossible to give accurate estimates of the arnual cost of these but an attempt has been made as follows: Expansion ot the Police Force . $34,500,000 Additional units of the Malay Regiment ... 7,000,000 Volunteer units 1,500,000 $43,000,000 470. The figure of $84,500,000 in respect of the expansion of the Police Force is based on the assumption that Police Force of a total strength of not less than 80,000 will be required. It is a rough figure bearing the same proportion to 80,000 as the recurcent e:st of the Force at present bears to its present strength. 471. The Organization and Methods Adviser is examining the organiza- tion and cadre of Government departments as fast as the limited staf’ which the Government oan put at his disposal permits him and no doubt considerable economies will result but inoreases in the administrative staff particularly in the rural areas will be necessary on security and other grounds. It has therefore been assumed that the present rate of administra tive expenditure will remain unchanged. 472. In addition, $7,000,000 is a rough estimate of what may be expected to be required in a full year to implement in the Federation the recommendations of the Special Committee on salaries coupled with those of the Committee on cost of living allowances and comparable proposed inereases in the wages of daily paid Government employees. One of the173 objects of the Development Plan is to raise standard of living-of people in the lowest income groups, but the present continual pressure to raise the salaries and wages of Government servants is a very serious matter when viewed against the background of the Development Plan since such increases clearly make all activities of Government more expensive and thereby limit the ability of the Government to expand its activities 473. Again, sinking fund charges and interest on the portion not so far rnised of the 1949 loan are not included in the figure of $305,000,000 mentioned above and a further $3,600,000 must be added on that account. 474. A further increase needs to be made on account of normal increases in annual expenditure on pensions. $1,000,000 may be allowed for this within the period of the Development Plan. 475. So far, this analysis of the expenditure of the Federal Govern- ment has beer confined to what is technically known as annually recurrent oxpenditure. But there must be every year additional expenditure on replacing and effecting special repairs to plant and equipment of various kinds, in effecting relatively minor improvements which are not chargeable to loan funds and in meeting the day-to-day demands of the administration for new equipment. It is impossible to give an accurate estimate of the ammount of such expenditure since the demands vary each year but the provision in the 1950 estimates, which were very heavily pruned, after dedueting expenditure on the emergency and on’ projects financed from Colonia} Development and Welfare sources, amounted to $30.6 millions. This included $1.4 millions in respect of capital expenditure on the draft Development Plan, and so $80 millions may be taken as a minimum average of what is known as Government special expenditure. 476. Leaving aside, therefore, capital expenditure on the draft Development Plan and expenditure directly related to the present terrorist campaign (as opposed to future defence requirements) the true financial position of the Federation when the present Development Plan is in opera- tion would seem to be as follows: Revenue... . .. $893,600,000 Expenditure at 1950 level .. $805,000,000 Additional Defence expenditure .. 43,000,000 Revised salaries and wages . 7,000,000 Normal special expenditure . 80,000,000 Additional interest and sinking fund charges 1949 loan ' 8,600,000 Recurrent expenditure on Dovelop- ment Plan... 28,885,600 Increases in pensions we 1,000,000 Total Expenditure $417,935,600 Less expenditure on Food Control... 2,000,000 ———— 415,935,600 477, ‘This indicates a probable deficit of $22,985,600 and makes no allowance for the further capital expenditure of $55,182,000 to be met from revenue over five years or $11,026,400 per annum. 478, Finslly the reserves of the Federation have, as a result first of all of expenditure in respect of the Japanese occupation period and restoration of damage done during that period and later in respect of174 sure on the emergency, fallen from approximately $21,500,000 in )46, to approximately $69,000,000 at the beginning of 1950 und need lilt up again. It is suggested that it would be prudent to aim at j these reserves at the rate of $10,000,000 per anwum and on this ditional revenue of approximately $48,362,000 per annum will be ‘if the Development Plan is to be financed and the reserves of the slowly restored. In the first instance, the Federation must make every effort an to raise this additional revenue itself, It is confidently expected the next few years, having regard to the fact that direct expendi- Defence and internal Security on the basis of the figures in this amounts to $88,900,000 or 22.6 per cent. of the total revenue, jesty’s Government will be willing to contribute towards. that ure but His Majesty's Government will first require to be that, having regard fo rates of taxation in the United Kingdom, eration is doing everything that it con to help itself and that 1 due course become financially self-supporting. It may be taken as certain that it would not be beyond the of the country to find this additional sum in annual revenue. The is rather how, within the limits of the present structure of taxation, may be spread most evenly, The most obvious means of increasing is to increase the yield from income tax. This can be done in two ast by inerensing the rate, and second by expanding the scope of ‘The latter method, which would be effected by reducing personal r allowances so as to make a greater body of the citizens liable to wolves obvious administrative difficulties, owing to the large number »s from whom comparatively small sums would have to be collected. well be several years before such a system could be brought into 1. The political advantages would, however, be considerable, since a taxpayer, more than in any other way, that the individual is face to face with the fact that his own productive efforts are y the only source from which social developments will flow. Income tax must therefore be regarded us the main source of L revenue, but it is not the only one. Customs duties may also be to a certain extent, and an upward revision of land rents is dly overdue. Tt should be made clear, however, that it is not an policy to find the maximum rate that a tax will bear, and then On the contrary it is the hope that, with an expanding trade and only mioderate revisions will be necessary in order to bring in amount required. Finally, there remains the question whether, if the development ne is a fensible one, the country is prepared to carry it out. The clenr. On the one side a great effort is being made ‘to re-establish 5 of peace and security. On the other side an equally great effort v be made to provide firm foundations of economic prosperity and \l-being. ‘The one is complementary to the other. Hither of them “be barren of result. Government Press, Kuala Lumpur.